What Is a Credit Score? Credit Score Definition & More

May 14, 2018 | Odysseas Papadimitriou, WalletHub CEO

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A credit score is your credit history expressed as a number. You can also think of it as a grade for how responsibly you’ve managed loans, lines of credit and other financial obligations over the years.

Credit scores are extremely important because they affect your ability to borrow money as well as the cost of doing so. They also play a role in the car insurance premiums you pay. Plus, bad credit can even make it difficult to find a job or a place to live.

“Credit score” is a pretty general term, though. We each have hundreds of different credit scores. And the ones lenders use to evaluate applications aren’t always available to us. But two types of credit scores in particular are popular among lenders and consumers alike: FICO Scores and VantageScores.

Credit Scores In Depth

Credit scores are based on the information in our major credit reports. Understanding that connection is the first step in understanding your credit score.

The next step is to get a feel for the recipes used to turn credit-report info into credit scores. Below, you can see how the two most popular types of scores weigh the various ingredients. Other types of credit scores may be calculated a bit differently, but they will likely produce very similar results.

VantageScore FICO Score

If you have good marks in each of these categories, your credit should be good no matter what score is used. Continue reading to learn more about what each category includes. You can also check your own grades with WalletHub’s free credit analysis.

Payment History

Payment history is the most important part of any credit score, accounting for up to 40% of your overall rating. Here’s what goes into it:

The number of loan and credit accounts that you have always paid on time.

The number of accounts for which you are currently at least 30 days behind on payment.

Whether or not you have gone bankrupt, been ordered by a court to pay amounts owed, had past due accounts sent to collections, or have fallen at least 30 days behind on a loan or line of credit. The recency of these items will also factor in.

How many days past due you are on delinquent accounts.

The dollar amount past due you are on delinquent accounts and/or accounts sent to collections.

Given that a credit score is a reflection of your financial responsibility, it makes sense that you will be dinged for failing to make payments as agreed on certain types of accounts.

Amounts Owed

The money you owe lenders accounts for at least 30% of your score. It’s an indicator of whether your spending habits are sustainable and if you’re likely to face serious financial problems in the future.

Lower is better with each of these data points, which may be grouped together or separated into individual scoring categories. It depends on the type of credit score. VantageScore, for example, has separate categories for balances, available credit and utilization.

Length/Depth of Credit History

How long you’ve been using loans and lines of credit is important to the predictiveness of a credit score. For example, a good credit score based on years of information has a better chance of accurately forecasting a borrower’s risk than a good score based on a month or two of information. Years of positive information also make the occasional mistake less damaging.

Bear in mind, however, that it’s not when you first used credit that really matters. Rather, credit scores generally use the age of the oldest open account on your credit report or the average age of your open accounts.

This, along with the types of credit you use, comprises the Depth of Credit portion of a VantageScore.

Types of Credit Used

This category measures how many different types of credit accounts you’ve used and how recently you’ve used them. For example, some common types of accounts include credit cards, personal loans, retail lines of credit, auto loans and mortgages. In general, the types of credit you’ve used show how well-rounded of a borrower you are.

New/Recent Credit

Credit-scoring companies use this “what have you done for me lately” category to emphasize recent financial performance. After all, that’s one of the best predictors of future performance.

This section includes:

How many loans and lines of credit you’ve opened in recent months as well as how that number compares to the total number of accounts in your credit history.

How long it’s been since you opened your newest accounts.

The number of hard inquiries (i.e. how many times you’ve applied for credit) made into your credit history in the last 12 months.

How long it’s been since your last credit inquiry.

In short, creditors want to know whether you’re desperate for additional credit. That’s a red flag for a high-risk borrower.

How to Check & Improve Your Credit Score

Credit scores are pretty fluid, capable of changing whenever new information gets added to our major credit reports. So it’s worth checking them on a regular basis. If you want to see what your credit’s been up to, you can check your latest credit score for free on WalletHub. WalletHub is the only site that offers free daily credit score updates, so there’s no better place to monitor your score’s progress.

Your free WalletHub account also comes with customized Credit Analysis. Basically, we’ll review each component of your score and tell you how to improve.

Ask the Experts: Credit Score 101

People often overcomplicate things when thinking about credit scores. So to help simplify things in your mind, we posed the following questions to a panel of personal finance experts. You can see who they are and what they said below.

What do you think is the biggest misconception that people have about credit scores?

The Consumer Financial Protection Bureau found a 90% correlation among the results produced by a collection of the most popular credit scores - what is the biggest takeaway for consumers?

Do you think most people understand there is not a single “real” credit score?

Do you think the average person checks his or her credit score often enough?

David Ely

Associate Dean and Professor of Finance in the Fowler College of Business Administration at San Diego State University

What do you think is the biggest misconception that people have about credit scores?

Not using credit will help achieve a good credit score. A credit history is needed for a strong credit score.

Do you think most people understand there is not a single “real” credit score?

People who periodically check their credit score know that it can fluctuate over time, that it is not easily predictable, and it is not closely linked to behaviors. Therefore, most people understand that there is not a single “real” credit score.

Do you think the average person checks his or her credit score often enough?

An individual planning to apply for a loan should check his or her credit score prior to submitting the application. This would allow the individual to uncover any error in the information that goes into the calculation of a credit score, and ensure that the loan decision is based on correct information. Individuals with knowledge of their credit score can make a more informed decision about the amount of credit they qualify for, and whether the terms of a deal are fair. Identity theft is a very real risk, so it is important to periodically check one’s credit report to detect unfamiliar accounts and activity in a timely manner. It is less important to monitor credit scores on a frequent basis, since credit scores are based on information in credit reports.

Carlo Silvesti

Assistant Professor of Accounting at Gwynedd Mercy University

What do you think is the biggest misconception that people have about credit scores?

Consumers believe that, the more credit they have available, the higher their credit score will be. They fail to realize that, if they have to much credit available compared to their income, it will actually lower their credit score.

Do you think most people understand there is not a single “real” credit score?

Most people do not realize that there are 3 credit rating agencies, and that banks, credit card companies and lending institutions use one of the agencies.

Do you think the average person checks his or her credit score often enough?

Most people do not check their credit card scores often enough. In fact, most people do not check their credit scores at all, until they make a major purchase, such as a car or mortgage. If the finance rate comes in higher than expected, they want to check their score to see why. When requesting a credit card and again, not receiving the rate they wanted, they will check their credit score and ask why.

Everyone should check their score at least annually. The consumer needs to work on their credit score by paying off more than the minimum on their credit card balances, and to make timely payments on their loans and mortgages.

If more and more hacks continue on businesses, banks, credit agencies and the IRS, consumers should consider checking their credit scores often, and checking the details on their credit card charges.

Don Capener

Dean for the Davis College of Business at Jacksonville University

What do you think is the biggest misconception that people have about credit scores?

People with high credit scores don’t ever dip into their credit line. Cardholders can maintain a very high (750+) credit score even if they owe $1-3,000 on their credit cards, as long as they consistently pay more than 20% of the card balance.

That high a credit score translates into a low interest rate on your card. The reality is that few cards offer less than 12% interest on revolving balances. They treat most of the higher quality borrowers the same in terms of interest rate, but vary the credit lines dramatically.

Do you think most people understand there is not a single “real” credit score?

Most people assume incorrectly that all major bureaus use the same scoring system. They use different data scores and often vary between 50-80 points.

Do you think the average person checks his or her credit score often enough?

Yes. I believe Discover and other issuers are making credit score checks a lot more frequent and easy to do.

Valrie Chambers

Associate Professor of Accounting at Stetson University

Do you think most people understand there is not a single “real” credit score?

No, but the credit scores should correlate fairly well, so I don’t think that it’s critical that they understand this.

Do you think the average person checks his or her credit score often enough?

No, but this is getting easier to do, as more credit card companies include this information with their statements.

Muriel D. Hepburn

Instructor in the Division of Business and Information Technology at Atlanta Metropolitan State College

What do you think is the biggest misconception that people have about credit scores?

A major misconception is that an individual only needs to be concerned about his or her credit score at the time a major purchase is made.

The Consumer Financial Protection Bureau found a 90% correlation among the results produced by a collection of the most popular scores – what is the biggest takeaway for consumers?

The outcome of the study provides consumers with the comfort that their creditworthiness will not differ widely between the varying credit scoring models.

Do you think most people understand there is not a single “real” credit score?

Many consumers believe that the “real” or “true” credit score is FICO, as it is most commonly known. Instead, there are various credit score models, produced by the three credit bureaus and other organizations. For consumer lending, lenders use credit scores generated by many different credit scoring models.

Do you think the average person checks his or her credit score often enough?

Consumers have free access to all three of their credit reports (Experian, TransUnion and Equifax) annually. Consumers do not regularly review their credit reports and scores. Errors do occur, and there could be mistakes on any one of the credit reports. Incorrect information can result in a consumer being granted or denied a loan. A regular review of the credit reports can highlight errors that need to be corrected.

Robert Babich

Assistant Professor and Coordinator of Business Programs in the Department of Business & Technology at Kankakee Community College

What do you think is the biggest misconception that people have about credit scores?

There are two big misconceptions that I hear about all the time. One is that there is “one” credit score. There are many different credit score models that may share some similar elements, but produce different results. Rarely do two different models produce the same credit score. When applying for significant credit (car loan, mortgage, etc.), it’s worth asking what credit score the lender will use to evaluate you.

Another big misconception is that it takes a long time to repair poor credit. A dedicated credit repair effort can substantially change your credit score in as little as 4-6 months (many changes can influence your score in less than 30 days). I know it may sound like a long time, but on larger loans, it’s definitely worth postponing the purchase to get your credit in a position where you will qualify for better rates. For example, a 0.25 percent rate change on a $150,000, 30-year mortgage results in a difference of interest paid over the life of the loan of $7,721.

The Consumer Financial Protection Bureau found a 90% correlation among the results produced by a collection of the most popular credit scores - what is the biggest takeaway for consumers?

The biggest takeaway is that there are some credit constants across most models, such as payment history and amounts owed. Credit scores may differ by model, but most share the same fundamental factors. Focus on the basics to improve your credit, don’t worry as much about the nuances of one model over another.

Do you think most people understand there is not a single “real” credit score?

No. See first answer.

Do you think the average person checks his or her credit score often enough

No. The traditional view used to be that you should check it once a year, but I think that in the current environment, you should check it more frequently, particularly if you are shopping for large credit (mortgage, etc.). If you rotate the annual, free reports available from the big credit rating companies, you should be able to check your score every few months. Many credit cards now offer your score (but not much detail) on a monthly basis. I would also strongly recommend more frequent monitoring if you’ve ever been a victim of identity theft.

Martina Schmidt

Instructor of Finance at the University of South Florida St. Petersburg

What do you think is the biggest misconception that people have about credit scores?

I think that a big misconception people have about their credit reports, and therefore their credit scores is that they are accurate. Yet, the data appearing on credit reports may be ambiguous, duplicative, incomplete or even incorrect (Avery et.al, 2003).

Another typical misconception is that credit scores are only important when getting a loan. However, consumers need to be aware that they are also used in employment screening and underwriting of property and casualty insurance.

The Consumer Financial Protection Bureau found a 90% correlation among the results produced by a collection of the most popular credit scores - what is the biggest takeaway for consumers?

The credit scores produced by the different credit bureaus are similar, but not identical. That is because they use their own proprietary algorithms and models to create the scores. One credit bureau may have unique information captured on a consumer that is not being captured by the other bureaus. Also, the same data element many be stored or displayed differently by the different bureaus. The takeaway is that consumers need to check their credit reports at the different credit bureaus, not just one, and make sure that the information is correct and complete. If it is not, the consumer needs to report any errors, omissions, or identify theft right away.

Do you think most people understand there is not a single “real” credit score?

I think that depends on the financial literacy of an individual. If a person is not very financially literate and has never applied for a loan, it is very likely that this individual might have the misconception that there is only one single credit score. I would hope that the topic of credit scores is part of the curriculum in the U.S. K12 school system. It is certainly something I discuss with my students in my finance and real estate classes here at USFSP.

Do you think the average person checks his or her credit score often enough?

No, I don’t think consumers check their credit scores often enough. For example, when I ask my students, about 40 percent on average report that they don’t know what their credit score is. Interestingly enough, we also know that 32 percent of people overestimate what their credit score is (Perry, 2008). However, I hope that after the recent Equifax data breach, people will become more vigilant about regularly checking their credit reports and scores. You can request your credit report for free once per year at the bureaus Experian, Equifax, and Transunion at www.AnnualCreditReport.com.

Jim Vogt

Lecturer in the Charles W. Lamden School of Accountancy at San Diego State University

What do you think is the biggest misconception that people have about credit scores?

I think that the biggest misconception people have about credit scores is that they have a single credit score, which is not accurate. Although different scores may be similar and based on similar criteria, every individual has three credit (FICO) scores -- one with each of the three credit bureaus. The fact that there is a 90 percent correlation between the three most popular credit scores tells us that these scores and methodology are similar and that, generally, it should not make a significant difference which credit bureau a lender uses.

But what is a credit score? Foremost, a credit score is measure of risk for lenders. Credit scores are specifically designed to reflect the risk and likelihood of an individual becoming seriously delinquent within 24 months. Higher credit scores mean lower risk to the lender, which usually translates into lower interest rates. Credit scores are comprised of five different elements: payment history, total amount owed, length of credit history, type of credit, and amount of new credit. Demographic information has no effect on a credit score. An individual credit score can range from 300 to 850.

If credit and payments stay the same for an individual, a credit score should not change significantly in the short-term. However, it is a good idea to frequently check one’s credit score to ensure that there are no errors or potential fraudulent activity. Most consumers do not check their credit scores often enough, if at all. Rather than checking credit scores periodically, it is often a very good idea to subscribe to a credit monitoring service. Most of these services will offer to monitor and report changes in a credit bureau report, as well as changes in a credit score. Typically, there are options to have all three credit bureau reports and scores monitored. Consumers benefit when they are notified of any changes in their reports or scores, which can help identify any potential errors or fraudulent activity early. Identity theft is so prevalent, that an early warning like this can help save significant time and money for the consumer.

Harold Weston

Clinical Associate Professor of Risk Management and Insurance in The J. Mack Robinson College of Business at Georgia State University

What do you think is the biggest misconception that people have about credit scores?

Bills should be paid on time and in full, including credit card bills. Other than home and car loans, and the emergency expenses one cannot cover with savings, if you can't afford to pay the bill, then you probably shouldn't buy on credit

Bills should be paid on time and in full, including credit card bills. Other than home and car loans, and the emergency expenses one cannot cover with savings, if you can't afford to pay the bill, then you probably shouldn't buy on credit

The Consumer Financial Protection Bureau found a 90% correlation among the results produced by a collection of the most popular credit scores - what is the biggest takeaway for consumers?

I have read the report. It has some pretty graphs, but is not very sophisticated. Anyway, I am not sure what the takeaway is, other than the scores a consumer receives vary a little, but not significantly (most of the time) from what merchants and lenders see when they obtain a score.

Do you think most people understand there is not a single “real” credit score?

No. I don't think they really understand a credit score anyway. I'm not sure any of us do, unless you work for the CRAs (Credit Reporting Agencies) or Fair Isaac & Co.

Do you think the average person checks his or her credit score often enough?

I'm not sure what average tells us here. Some people seem obsessed with the score as if it is a badge of character and merit, and worry about any adverse action as if it is a type of quantitative defamation so that their personal reputations are measured by these scores. Other people are oblivious to the effects of credit scores on their functioning in a consumer economy. Most of us probably only need to check a score once a year, or before considering a major purchase.

Annalisa Barrett

Clinical Professor of Finance in the School of Business at the University of San Diego

What do you think is the biggest misconception that people have about credit scores?

There are many misconceptions about what is used to calculate a person’s credit score. People assume that their score takes into account their current job and how much money they make. However, no salary or employment information is included in the FICO score. Similarly, a person’s age is not considered for the FICO score. Many young people feel that they are at a disadvantage when it comes to their credit score. This perception is usually due to the fact that their length of credit history is taken into account, rather than their age.

Do you think most people understand there is not a single “real” credit score?

No, in fact, many people think that their credit scores are determined by a government agency or regulatory body. However, the credit score used by the vast majority of lenders is the FICO score, a product of Fair Isaac Corporation. Fair Isaac is a publicly-traded company, which trades on the New York Stock Exchange and is based in San Jose, California. It may come as a surprise to people that their credit score is actually a product sold by a company with a profit motive and shareholders to satisfy.

Don Cox

Professor of Finance and BB&T Distinguished Chair in Money & Banking in the Department of Finance & Economics at Georgia Southern University

What do you think is the biggest misconception that people have about credit scores?

There are lots of misconceptions about the factors that drive credit scores up or down, but probably the biggest overall misconception is that there is a single credit score for each person, rather than knowing that different credit bureaus and lenders have different models for determining a credit score

The Consumer Financial Protection Bureau found a 90% correlation among the results produced by a collection of the most popular credit scores - what is the biggest takeaway for consumers?

That consumers should not obsess about minor differences in their credit score from different sources. The high level of correlation suggests that even with slightly different models and formulas for calculating credit scores, the general conclusion that a lender will reach is most often consistent with what other lenders will reach. Knowing the credit score from any one or two sources is usually as good as knowing the credit score from most any popular credit scoring service.

Do you think most people understand there is not a single “real” credit score?

While this is commonly understood by many people, I don’t think it is true of a majority of people. I think well over 50 percent of consumers do not know this.

Do you think the average person checks his or her credit score often enough?

Probably not. It seems to me that there are the obsessive types that probably check too often, and worry about minor changes in their credit score that are really not meaningful, but there are far more people that never check their credit report and/or credit score at all. To me, it is wise to get the free annual credit report that is allowed from each major credit bureau to review for errors and accuracy and to check for fraudulent accounts or activity. And, it is wise to pay attention to your credit score when you have access to it. In my opinion, checking these things several times a year is sufficient for most people.

Philip E. Strahan

Professor and John L. Collins, S.J. Chair in Finance in the Carroll School of Management at Boston College

Credit scores are a useful way for lenders to assess default risk at low cost, which allows them to provide consumer credit. Absent this tool, the supply of credit to consumers would be drastically reduced, and likely much more expensive. It is true that mistakes can occur, but overall, credit scores are very a useful tool.

In 2009, major legislation (the CARD Act) reduced the ability of lenders to use information from changes in borrower credit scores after extending consumer credit. Before the Act, lenders could, for example, raise interest rates on credit card balances at any time. For example, if a borrower's credit score declined, lenders could raise rates (however, lenders could raise rates for any reason.) The CARD Act limits lender ability to change rates on existing balances (or fees) without notifying borrowers, and they must wait 45 days. The research suggests that this policy change reduced access to credit to non-prime borrowers, most likely because the CARD act limits lenders' ability to protect themselves immediately in response to declines in borrower credit quality (i.e., by raising the interest rate). On the other hand, there was also a benefit: research finds that prime borrowers seemed to have been helped by the restrictions in the CARD act.

Marty Reid

What do you think is the biggest misconception that people have about credit scores?

Oftentimes, individuals do not understand how their credit score impacts their financial position. It impacts your ability to secure a loan and its interest rate. Although the lender might approve the loan, you may receive an above-average interest rate because of your credit score.

Your credit score could impact the prospects of getting a job.

In most states, auto insurers utilize credit history to determine your insurability. Having good credit, among other factors, increases your chances of qualifying for the best rates. Note that auto insurers in California, Massachusetts and Hawaii are not allowed to employ credit data in evaluating applications.

Mike Kiyosaki

Clinical Professor of Management in the Brennan School of Business at Dominican University

What do you think is the biggest misconception that people have about credit scores?

Most people are not really sure what a credit score is or why it is important. Credit scores are used as input for renting apartments, car loans, home loans, credit cards, insurance, job applications and a multitude of other things. Understanding and managing your credit score should be an integral part of your personal financial planning process.

The Consumer Financial Protection Bureau found a 90% correlation among the results produced by a collection of the most popular credit scores - what is the biggest takeaway for consumers?

The biggest takeaway is to understand and manage your credit score and not get hung up on whether it is a FICO score or a VantageScore. If you are in good shape on any of these scores, chances are pretty good that you will be good on the others. Most of the input data for scores is the same, with the differences lying primarily in the algorithms and freshness of data.

Do you think most people understand there is not a single “real” credit score?

No. Let’s be happy if they have seen and understood their personal credit score and credit report.

Do you think the average person checks his or her credit score often enough?

Most people only check their score if they are applying for a loan or line of credit. I would recommend they subscribe to a free credit monitoring service and monitor on a quarterly basis. Frequent checking of your score gives you the benefit of knowing your credit health, as well as alerting you to any fraudulent activity and potential identity theft. Fixing credit issues takes time and emotion.

Onur Arugaslan

Professor of Finance & Commercial Law, PNC Endowed Chair and Director of the Personal Financial Planning Program in the Haworth College of Business at Western Michigan University

What do you think is the biggest misconception that people have about credit scores?

Most people assume that it's illegal for employers to check the credit scores of job applicants. However, many employers do use that information as an input in their hiring decisions.

The Consumer Financial Protection Bureau found a 90% correlation among the results produced by a collection of the most popular credit scores - what is the biggest takeaway for consumers?

This high correlation implies that popular credit rating agencies utilize similar personal data and calculations to come up with credit scores. Consequently, the consumers of these scores -- the individual, the lender, or others -- are at liberty to choose any one of these rating agencies.

Do you think the average person checks his or her credit score often enough?

On average, people learn their credit score when their loan application gets denied or experience a similar negative outcome. At that point, it's too late and there isn't much that can be done to reverse the outcome. Therefore, people need to check their scores regularly, especially after events that may trigger a lowering of their scores, and investigate what they can do to bring the scores back up by working with their financial institutions.

David Barman

Professor of Accounting in the College of Business at Florida International University

What do you think is the biggest misconception that people have about credit scores?

That it only relates to buying a house or car.

Do you think most people understand there is not a single "real" credit score?

No, I don't think they do.

Do you think the average person checks his or her credit score often enough?

No.

Kevin Lee

Assistant Professor of Finance, John H. Sykes College of Business, The University of Tampa

What do you think is the biggest misconception that people have about credit scores?

On the one hand, some people believe that there is a magic method to quickly improve their credit score. On the other hand, there are many people who don't think they can ever improve their credit score and therefore never try. It is not enough to inform people what the factors are that impact credit scores. People should be given concrete, real world examples of actions they can take to improve their scores.

The Consumer Financial Protection Bureau found a 90% correlation among the results produced by a collection of the most popular credit scores - what is the biggest takeaway for consumers?

This is not surprising at all. Although the exact methodology used by the various credit reporting firms are not publicly disclosed, we do know that they largely calculate their scores using similar factors.

Do you think most people understand there is not a single "real" credit score?

I believe most people understand that there are multiple reporting agencies and that the scores can vary. What they don't seem to understand is that different lenders may use more information than just one or more credit scores to determine credit worthiness or that they may have their own internally generated credit score.

Do you think the average person checks his or her credit score often enough?

No people do not. In today's day and age of identity theft, people must be vigilant. Many banks and credit cards providers offer a free FICO score tracker. There are also some online services that provide free credit score monitoring. It is helpful to check these scores frequently as they may warn you of unauthorized activity.

John Giles

Instructor of Accounting, Meredith College

What do you think is the biggest misconception that people have about credit scores?

I think the average person doesn't appreciate the effect their credit has on every loan or business transaction they undertake. I also don't think they understand that it can effect job applications.

The Consumer Financial Protection Bureau found a 90% correlation among the results produced by a collection of the most popular credit scores - what is the biggest takeaway for consumers?

That it is important to monitor and keep your credit score up to date.

Do you think most people understand there is not a single “real” credit score?

No, I don't.

Do you think the average person checks his or her credit score often enough?

Again, no I don't.

A. Faye Borthick

Professor of Accountancy, School of Accountancy, Georgia State University

What do you think is the biggest misconception that people have about credit scores?

That credit scores can't be changed.

The Consumer Financial Protection Bureau found a 90% correlation among the results produced by a collection of the most popular credit scores - what is the biggest takeaway for consumers?

Credit score brands are interchangeable.

Do you think most people understand there is not a single "real" credit score?

No

Do you think the average person checks his or her credit score often enough?

Given the mindset of one's credit score not changing, yes.

Credit scores are symptomatic of a larger issue in society, i.e., the proclivity to devalue one's future self, about which see DeSteno's book – "Emotional Success: The Power of Gratitude, Compassion, and Pride".

Xun Bian

Associate Professor of Finance & Real Estate, Longwood University

What do you think is the biggest misconception that people have about credit scores?

I think a lot of people underestimate the importance of credit scores. Many people mistakenly believe credit scores only affect "credits". In addition to affecting whether or not, and at what interest rates, you can borrow money (e.g. credit cards, mortgages, etc.), credit scores are also used by a variety of service providers (e.g. utility, cell phone, and insurance companies, etc.) to decide whether or not they want to accept you as a customer. Many landlords check credit scores too. Therefore, the ramifications of bad credit scores go way beyond the availability of credits and may be much harder to live with.

The Consumer Financial Protection Bureau found a 90% correlation among the results produced by a collection of the most popular credit scores - what is the biggest takeaway for consumers?

Although there are different "brands" of credit scores, they are measuring pretty much the same thing. This should give consumers some confidence in the validity of credit scoring models used by different credit bureaus. Arriving at similar conclusions by different and independent analyses is always reassuring. The high correlation also indicates there are very little mixed messages in terms of what consumer should do to improve their credit scores.

Do you think most people understand there is not a single "real" credit score?

I don't think so. Most people say "credit score" rather than "credit scores", and most people give a single number when asked their credit scores. Although this misconception of "one score" is widespread, I don't think it is harmful. Different credit scores are highly correlated and often place a consumer in the same credit-quality category.

Do you think the average person checks his or her credit score often enough?

I don't think so. My view is that everyone should monitor his or her credit scores carefully and continuously. However, survey results indicate that a significant percentage of people don't even know their credit scores, and a large percentage of people check their credit scores less than once a year. In addition to checking credit score regularly, I also recommend everyone to check his or her credit report once a year (It is free!). It is important to make sure everything on your credit report is accurate. Reviewing your credit report also helps guard against identity theft.

Thomas A. Thomson

Quincy Lee Endowed Chair of Real Estate Finance and Development, The University of Texas at San Antonio

I include a segment on credit scores in the Principles of Real Estate Course that I teach, as that is a factor in the mortgage qualification process. From student comments, it seems the biggest misconception is that if you pay off your credit cards in full every month, it will hurt your credit score. I assure them that they will have good credit scores if they make timely payments in line with the credit agreement and that includes paying the full balance monthly.

I show students my FICO credit score (which is comfortably above 800), and the factors that are used to determine this score, and where I rate on each component. So they see the 4 credit cards I use, their current balances, our current and (now) previous auto loans, and our mortgage. I note how all of the loans we acquire are at the best advertised rate as our credit score is high, as is our financial capacity. I also note that I pay the full balance on our credit monthly so it is obviously not hurting our credit score to do so. I also note some of the amazing credit offers we get, and that occasionally we take them (one reason we have 4 credit cards on the go). One of our card provides a free credit score and each month via email I get a notice whether there has been any significant changes. I also show the recent inquiries and note how they have at times dinged our credit score to below 800.

Some students feel that credit scores are misrepresentations of credit worthiness and I try to explain they work quite well. I have had analyzed large amount of consumer financial information and prior to the FICO score, I developed similar scoring methods and found them to be very predictive. Of course when a person's financial life is quickly crumbling one can go from a high credit score to a much lower one very quickly.

I tell students that I had our children, as teenagers, get credit cards while they lived at home so we could help them learn to use credit wisely. When our son was in college and asked me to cosign an apartment lease (because he did not have enough credit accounts), I asked him instead to acquire new credit accounts to meet the requirements, which he did, and I did not have to cosign. As a parent, I would not have let him be homeless, but wanted him to first determine if he could solve the problem on his own. After graduating college and when buying his first house he had a very high credit score.

I also note that it is common to errors in one's credit bureau files (for example listing a credit account as active after it has been closed), but that as a rule these don't matter. The way to determine if errors in the credit bureau are a problem is to consult one's credit score.

The concern among college students is misuse of credit so I recommend they consider getting a credit card, but to only use it for things they are not tempted to overspend on, such as textbooks. (I've yet had one of my students finding themselves buying a textbook on differential equations, just because they can put it on their credit card). If they have a spending temptation for say entertainment, then they should limit themselves to using cash for entertainment.

I also note that the length one has had a credit account open positively affects credit score so it is in their interest to have credit accounts that they use wisely. Of course, if they are concerned they will use credit badly, then having such accounts will hurt, rather than help them so they should refrain from credit accounts until they are ready to use them wisely.

I also tell them having a good credit score is important for business students as their potential employers will want to know they have good business habits at their personal level. I will sometimes note that if they are in a serious relationship with someone, i.e. thinking marriage, they should probably share credit scores as a way to better know each other.

Alisha M. Harper

Chair, Departments of Accounting and Business Administration, Bellarmine University

What do you think is the biggest misconception that people have about credit scores?

There are two: that unpaid medical bills to not impact a credit score and that it will impact my score if I check it myself.

The Consumer Financial Protection Bureau found a 90% correlation among the results produced by a collection of the most popular credit scores - what is the biggest takeaway for consumers?

I would suggest any consumer obtain a copy of his/her credit score prior to approaching lenders. Based on the correlation, the lender's check should correspond to the consumer's information. Knowledge is power, and a consumer who knows his/her credit score can determine the likelihood of loan approval, interest rate(s) and applicable fees when approaching the lender.

Do you think most people understand there is not a single "real" credit score?

No. And, I believe this causes a lot of confusion and distrust for the average American. There are a lot of commercials asking consumers "do you know your credit score?" Consumers believe there can only be one, so both confusion and distrust result when a lender begins talking about multiple reports with different scores.

Do you think the average person checks his or her credit score often enough?

No. I do not believe the average person checks his/her credit score often enough. Much of this is likely a lack of understanding on the importance of the credit score. A secondary issue is fear - those with outstanding debts or that previously had low credit scores are hesitant to check their current score.

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@WalletHub

February 27, 2018

There are few guidelines you can follow to quickly improve your credit. First of all, check your credit report (you can do that for free on WalletHub) and dispute any inaccurate information you may find. If a family member has good or excellent credit, ask to become an authorized user on one of their credit cards. Their account, along with all of its positive information will be added to your credit reports. You could also create a payoff plan for any accounts in collections. This will produce immediate benefits, as the newest credit scoring models stop considering collection accounts once they’ve been paid. And lastly, you should improve your credit utilization by paying down balances early and often, as well as reducing your spending if possible.
That being said, please remember that there is no such thing as a quick fix to credit-score problems. Rebuilding your credit score may take up to a year, depending on how serious the damage is. You can monitor your progress, as well as receive personalized credit improvement tips by signing up for a free WalletHub account. Best of luck!

@WalletHub

February 23, 2018

Look no further – you can get your free credit report right here on WalletHub! WalletHub is the only site with free credit reports and scores that are updated on a daily basis. Plus, you get 24/7 credit monitoring and credit improvement tips, so you can spot errors, fraudulent activity and money-saving opportunities as soon as they appear. All you need to do is sign up for an account and provide the last four digits of your Social Security number. This will help WalletHub locate your credit report and ensure that no one else gets access to your information. Hope this helps!

@WalletHub

February 13, 2018

On a standard credit score range of 300-850, anything under 619 is considered bad – and 31.08 percent of the population is within this range. For a more thorough breakdown, make sure you visit WalletHub’s Credit Score Range page. Hope this helps!

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@barley_bob

December 21, 2017

Can I check my credit score for free?

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@WalletHub

February 13, 2018

Certainly – and you can do that right here on WalletHub! All you need to do is sign up for a free account to get started – you will need to provide your Social Security number so we can locate your credit report. This will also ensure that you, and only you, will be able to view your personal financial information.
WalletHub offers a free credit score based on your TransUnion credit report, updated on a daily basis. And you also enjoy free credit reports and a personalized credit analysis to show how you can improve. The best part -- checking your credit on WalletHub will not hurt your credit, because checking your own credit score is considered a soft inquiry, as opposed to a hard inquiry generated by applying for a loan or line of credit. Hope this helps!

@WalletHub

January 9, 2018

A good credit score is usually defined as anything from 660 to 719, based on the standard 300 to 850 scale. A score of 720+ is thought to be excellent, while scores from 620 to 659 are fair. You can learn more at: https://wallethub.com/edu/what-is-a-good-credit-score/24891/.
And if you’re curious about whether you have good credit, you can check your latest credit score for free on WalletHub: https://wallethub.com/free-credit-score/.